The unexpected ‘sandwich generation’ – a growing retirement concern
by Dawie de Villiers, chief executive officer of Sanlam Employee Benefits.
Johannesburg, 29 May 2014
Looking forward to the day when the kids have flown the coop and you can enjoy your retirement with more money to spend on your own dreams and aspirations? The bad news is that, in today’s economic environment, there is a strong chance you’ll end up a member of the new ‘sandwich generation’ – a growing group of South African retirees who are supporting dependants both older and younger than themselves.
According to the results of the 2014 Sanlam BENCHMARK Survey, individuals planning for retirement may well face a very different scenario in the future than they had anticipated. In general, people not only have less money to live on at retirement and they are living longer, they also have significantly greater financial burdens. “The 2014 survey suggests that only 29% of retirees are able to maintain their own standard of living in retirement. An alarming 60% of pensioners surveyed are responsible for adult dependants (parents and/or spouses), while 23% indicated that they took care of one or more child dependants,” says de Villiers.
Furthermore, the number of dependants that retirees are supporting is rising. This year, the mean number of child dependants increased from 1.9 to 2.5, and adult dependants from 1.1 to 1.2. “The term ‘empty nesters’ may well become redundant over time as household structures become more amorphous,” says De Villiers.
Increased longevity is a major reason why the number of adult dependants that retirees need to support is increasing, mostly the consequence of ongoing improvements in nutrition, public health and medical technology. “Although in a South African context the prevalence of HIV/Aids has had an impact on life expectancy, evidence is emerging that successes achieved with anti-retroviral treatment are likely to increase the proportion of older people in our country.”
The increase in the number of child dependants is largely the result of South Africa’s high rate of youth unemployment – 70% of unemployed people are aged between 15 and 34 years. “Many retirees are also looking after their grandchildren, where HIV/Aids has claimed the lives of one or both parents.”
De Villiers says the prevailing actuarial assumptions – based on life expectancy, family structure and capital requirements at retirement – no longer hold true. “These assumptions – including the average income target of most pension funds use of 72% of pre-retirement income – have been shown to require urgent revision.”
At the industry level, product providers should educate both employers and employees about the changes required. Employers should be encouraged to reconsider the retirement age in line with increases in longevity, and rethink the definition of work, offering options of phased retirement and second careers after official retirement. Government should consider reducing incentives for early retirement, and eliminating compulsory withdrawal of retirement savings, either mid-career or at retirement itself for retirees who have an alternative income.
“Product providers, employers and government all need to work together and think creatively to find solutions to the current retirement dilemma which will be relevant in our unique South African context and ensure the new ‘sandwich generation’ has the best opportunity for financial security in retirement,” De Villiers concludes.
Visit the Sanlam Benchmark Survey website here.
Sanlam Life Assurance Company (Ltd) is a licensed financial services provider.
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